The rise & rise of Bitcoin

There are two types of people who try to make money - investors & speculators. Investors are looking at fundamentals, long term positioning, etc. Speculators are looking to make quick bucks on fast trading. How does Bitcoin fit into this?

I bought Bitcoin in 2011 at about $11 each at the time, because I had a guy working for me who lived in Bangladesh and he needed to be paid.  All attempts to pay him were costing in both time & money.  Wiring money to him was a $50-75 expense by the banks, and sending Western Union or similar cost upwards of 27% of the money he earned.  Yet I could send him an email at $0 that he would get instantly.

Surely in the world of the Internet, there had to be a better way.  And there was.  He discovered Bitcoin, and using the infamous Mt. Gox exchange, I bought a ton of it so that I could pay him from that balance.  His work slowed down, so I found myself sitting on a ton of BTC in this exchange in Japan.

One day I found out that others were doing this, and that there were other exchanges.  By then the BTC price had quadrupled from what I bought it for, so it started to look like real money.  I moved the funds out of Mt. Gox to an exchange in Hong Kong, as they had promised to provide debit card access to the funds and this would suit him better for doing ATM withdraws of his payments in Bangladesh.

Well I guess I dodged a bullet there - Mt. Gox eventually collapsed under some criminal activities, further cementing my understanding that a basic human flaw is greed and it makes what were good people do bad things.  

Prior to that, I saw BTC price go up and up and up.  I think it hit about $1,200 each.  I mean imagine how that would feel.  You buy a ton of this at $11 and now it is worth $1,200 each.  Wow!  100x return on investment.  Incredible. 

But a little bird kept telling me that this thing had further to go.  Because I could see the power of the Internet and the prehistoric nature of banking.  If banks had a decent and fast solution for me to pay my guy in Bangladesh, we would not be having this happen.  I would have used PayPal or something like that, and he would have been paid.  But his country was on some “terrorist watchlist” and consequently didn’t have some reciprocal banking agreement with the USA.  So it is what it is.  I wasn’t complaining.

It then crashed down to about $150 each.  That hurt.  I mean you doubt yourself, you wonder if you should get out.  You see the losses and you feel regret you didn’t sell at $1,200 each.  That’s natural.  Happens to every person who invests money in anything.  But I wasn’t giving up just yet.  I (again) saw the efficacy of the currency in being able to facilitate transactions, and with a global world needing to move money around, this was going to huge.

Then the Silk Road website started to get some exposure, and eventually it was taken down by the Feds and the founder jailed.  It showed that a censorship resistant currency with so called anonymity (it doesn’t have this, but those trading back then thought it did), would disrupt the entire financial markets.  Senators started to wake up and talk about Bitcoin.  The banks felt threatened and started to deploy their armies of spin doctors to spread F.U.D. (Fear, Uncertainty & Doubt) on the whole Bitcoin fire, trying to wash it out.

But it wouldn’t go away.  As a means of transacting, it just kept getting stronger.  Some small businesses would accept it directly at the point of sale, and those that didn’t could be paid using Gift Cards that could be purchased with Bitcoin.  There was a shadow economy emerging in which peer to peer transactions could be done directly between human beings.  Bitcoin had re-invented cash.  No credit, you can only spend what you have, and there is no chargebacks or any other flaws to the existing financial system.

Advocacy turns to greed (again)

Fast forward to 2017.  The news of this new asset reaches the mainstream, greed starts to spiral out of control, the price heads up to touch $20,000 each.  I’m sitting back with my stash of BTC from 2011 in amazement.  Sure, I tried to evangelize others in this new currency because of what it could do, but at this point the cracks in the system start to show.

The level of volume that this network assumed never came to be.  The “miners” (the big data centers that validate the transactions) were making a lot of money on “fees” rather than the mining rewards of the currency design.  They took the prehistoric banking model to make money, which meant that a small BTC purchase was costing up to $20 to complete out.  Then it comes out that hardware manufacturers that had been making ASIC mining hardware (specific hardware designed to mine BTC fast), were lacing it with code that favored their own operation of the said miners over other miners.  Again another flaw of greed over humanity.

Everyone had no interest in the transaction power of BTC.  They just wanted to HODL.   They just wanted to sit on their stash and not transact it, because tomorrow it could double again.  The currency wasn’t a currency anymore.  Now it was digital gold.  You’d buy a stash of it, hold it in a wallet, hope you didn’t get hacked and wait for the price to go up.

That’s when I got out.  I cashed out all my chips and left the casino.

I’m not complaining - I did very well out of this.  But the whole original promise was never fulfilled.  And probably never will be.  Like in the banking system, there were layers (or “side chains”) created that would allow you to do faster transaction validation, with eventual settlement later, but the miners were slow to adopt it because it went against their own self-interest of fees and profits.  Eventually they caved and “Segregated Witness” or SegWit as it became known emerged.  This helped with being able to handle volumes of transactions and reduced down the price, but again - with an asset that is likely to go up, no one is transacting for retail level things, so the timing on this could not be worse.

There were new technologies that allowed for very fast transactional settlement (e.g. The Lightning Network), but even though the technology is amazing, no one wants to hear about it.  It is like finding a better way to transact gold.  The thing is that no one wants to spend their gold, so what is the point?

The entire promise of global transactions was lost in the static of greed.  And that is where we are today with Bitcoin.

Sure there are other forms of benefits to blockchains, etc. but BTC is not really a party to those.  Using Blockchains for smart contracts, etc. is being done predominately on Ethereum, and other alt-coins tried to generate the greed speculation that BTC originally had, but eventually they are branded as “shit coins” and people dump them and run to the hills.  Some make out like bandits, and others are REKT.

A Ponzi scheme?

Recently I saw an interview with Dr. Craig Wright.  He is a fellow Australian, who recently claimed to be behind the handle “Satoshi Nakimoto”, the inventor of Bitcoin.  I’m not sure what I believe on that, and I really don’t care.  Many think he might be and many think he’s just starved of attention and wants his 15 minutes of fame on this.

But he’s an old school BTC guy.  In the interview he brought back many memories of what BTC was like almost 10 years ago.  The promise to change the world of banking, to empower those who were “unbanked” with the ability to trade peer to peer.  Villages in Africa could sell their goods directly to art collectors in London, coffee growers in Mexico could sell directly to buyers in the USA, etc.  The money could get to the people without it being eroded by the very distribution system that is supposed to allow it to flow quickly and cheaply.  

I remember back in about 2014, I went to search for a Bitcoin ATM in Phoenix.  A few had popped up, and I found the address of one and went to seek it out.  It was in one of those check cashing places - the places where those of lower economic means would go to get cash for their pay checks every 2 weeks.  

When I arrived a large number of immigrant workers were there.   They were waiting for their pay master to come and give them money.  Then they would go into the check cashing place (which also happened to be a Western Union & Moneygram place), to send a large portion of the pay home to Mexico or where their families were.

As I waited in line to talk to the lady at the counter about where the BTC machine was, I saw it in the corner of the store.  I wanted to tell everyone in line to stop making the bankers rich by giving them one quarter of their earnings, and use BTC.  If they could set their families up with a wallet to receive it, and they could just cash out in their home country, surely this would be a far more effective and cheaper answer.  But they wouldn’t listen to me.  They didn’t trust me and this was way too complex.

That’s the world we live in.  People have to get over their trust & fears with newer technologies to use it, and if there is any potential to see the price rise, they won’t spend it.  That goes against the fundamental design of a currency.  It is supposed to be used - not HODL’d.

So when I look at BTC today, I still have the urge to want to get back in.  But I have to look at this like any other investment.  Here’s how I look at things like this:

• What does it do?
• Is this viable in comparison to competition?
• Is the price likely to be stable?
• Do people want it?
• What are the risks of the investment?

I don’t think I can answer anything positive in regards to BTC right now.  Sure, I see it as a free market, libertarian thing where peer to peer transactions can be done without a counter party.  But that’s not true because you need exchanges and miners - both of which have proven to be no different to bankers in the past.  Greed, it would seem, sees no one that it cannot corrupt.

If you buy Gold as a safe-haven, which I do, I see some value here because of history.  It is a safe-haven that is well accepted for that world wide.   Entire countries buy gold as a reserve to protect their wealth, and although it has some value in terms of industrial use, it really is mined just to provide a stable backing to the ups and downs of currencies.

Is that now the role of Bitcoin?  If so, then it would remove the issues of vaults, security, etc.  If that is a disclosed purpose, then I can understand the attractiveness and I would buy it just like I would buy gold.  The problem, however, is that the BTC price is still relatively volatile.  In order for volatility to stabilize we need regular usage of the currency, but that isn’t happening.  It could be that banks and industrial purchases are coming in to acquire it, but I don’t see that happening at a meaningful level just yet.  It is still a speculation.

Speculation vs. Investment

Just as we have seen the BTC price rise from $11 each to $20,000 those days are in our history now.  The good news is that BTC price has been relatively steady since about January 1st 2020, and although it has historically dropped to half of its value (in the case of 2017/2018, we saw it go from $20K to $3K), it seems to want to claw its way back up again.  Is it going to exceed its original top price point?  That’s hard to say, without global adoption, and clearly that isn’t going to happen for commerce.  Maybe large transactions, but you won’t be buying a cup of coffee with BTC just yet.

So those that are jumping in on this are speculators.  They are not long term investors.  Maybe they have some money they can afford to lose, so they’ll bet this on black.  This is the casino, and you have about that level of chance of making money here.  Thankfully there isn’t a “house” that always wins here, so maybe the odds are in your favor a bit.  But you should only go into this world with money you don’t care if you lose.  That’s just like a casino - take some spare change and have some fun with it.  But a hardcore investment?

For me, it doesn’t have the fundamentals that drew me into it back in 2011, and it is directly competing with Gold as a safe haven asset.  Interestingly, recent rises with BTC price seem to parallel increases in Gold price.  Clearly the reason for this is a lack of faith in Fiat currencies (ie. $USD, etc.) and it isn’t that BTC is better or Gold is better.  It is that the $USD is weaker by way of the USA printing more and more of it, and so those concerned about rampant inflation run to safe havens, and in this case they might be spreading their bets between Gold and BTC.

That’s ok.  Both are ideal for this.  Just look, however, at the historical price variances of either and if you are rushing to safe-haven assets, pick the horse that will likely win the race for you.

I’m playing in both camps, but more with Gold than anything else.  And this is coming from someone who made out huge with BTC before.  Take that into consideration.  I don’t get caught up in the fury of herd mentality.  If you are an investor, you are punting on what the price of something will look like in 2-3 years - not what it will look like in 30-60 days.  If you are doing the latter, you are a speculator - a gambler.  Like a day trader.  Sure there is room for them, but don’t expect to “Moon” with that approach.  You must look to what you think the world will be in 2-3 years, and that’s got to be the main focus here.  If you can predict the future, good for you.  I don’t have a crystal ball for this in regards to BTC, myself.  I look to predictable world events, and although there are some they don’t tell me the winners & losers at this point.

I’m not a BTC naysayer

I laid out here my entire rationale behind BTC.  What drew me into that world and kept me there for 7 years.  What threw me out of it, cashing in my chips and doing pretty damn well from it.  But if I debrief, it was that I found something that performed a needed task and I invested in it.  You must use that methodology here - does whatever you are investing in have a purpose and does it suit a need?  Define that need, and it will answer your questions.

I love the idea of us getting away from the traditional banking sector.  I believe that global banking is the leech that keeps sucking away the lifeblood from society - attempting to entrap us all in its clutches.  I see 18 year olds being forced to sign student loan debt obligations, with the banks using a gun to the head of child with the saying “If you don’t go to college, you can’t join the middle class”.  I refute that, but I’m just a guy.  The banks are bigger than me.

I see the banks extorting the life long 401K and retirement savings of people all over the world, where the hopes & dreams of getting off the work treadmill is often never realized because there isn’t enough money to survive on.  I see the dreams of those in younger demographics working hard, living frugal and saving their money, only to see that no one wants to hold their money, being forced into riskier and riskier asset allocations, and then watching the purchasing power of their $USD erode to half over the 10 years they are holding it.  The central banks are just using debt as a currency now - we must fight against that, but every time you borrow money, they just make up the money.  Out of thin air and with more and more debt slowing down the productivity of empires, it has to end badly.

What’s the common thing behind all of this?  Banks.  We must destroy them.  We must find a way to bypass them as they implement their road blocks to global transactions.  I thought BTC was the answer.  I’m not sure if it is now.  Maybe a newer crypto-currency will step forward, but the 11 years of BTC history that went to war with the banking cartels and is still standing, seems to have more hope that others.

The true indicators of whether this will work long term for me is the Lighting Network.  If that takes off so that you can buy a cup of coffee with BTC, then BTC has won.  But it isn’t happening right now in any meaningful way, and meanwhile there are still the echoes of greed from the 2017 period out there.  Those that make grandiose statements like “Bitcoin will go to $500K each, or I’ll eat my D#@k” need to stop it.  

Don’t get sucked into the herd of craziness here.  You make your own decisions based on factual, historical and basic observations.  Choose your investments and don’t try and be a day trader with this.  It rarely ends well - just ask those that tried their hand at day trading.